gg

Per http://www.1stguard.com/About.aspx : "First Guard Insurance Company is rated “A” (Excellent) by AM BEST and underwrites the majority of the over 15,000 vehicles serviced by 1st Guard Corporation." I have no idea what truck insurance premiums actually are, but if it's conservatively $150 per month, then 15,000 trucks @ $150/month, would lead to 27,000,000 revenue, or premiums, per year. Doesn't sound like an enormous acquisition, but seems like a better acquisition in terms of long term strategy than Maxim. Interested to hear more about this acquisition in the ensuing months

http://www.zerohedge.com/news/2014-03-18/white-house-reveals-biggest-threat-russia-yet-dont-buy-russian-stocks

My bet is on a small wholesale electronics distributor in the middle of a major restructuring?

I've spent (and continue to spend) a significant amount of my time looking for these types of businesses, mostly in Chicago and the Midwest. The problem you run into more than anything else, is that the "businesses" are mostly just a job that you are buying. After adjusting the earnings for the cost of hiring full time managers (of the caliber that you want so that business can actually be close to 'absentee-run'), the earnings multiple of the purchase prices often goes up too much that its not a reasonable return given the illiquidity, transaction costs, and time involvement. After that, another big issue you will often find is that the revenues for these small businesses are strongly tied to just a handful of customer relationships. During due diligence, you will need to get comfortable that the large customers are not sustained entirely on a personal relationship with the former owner. The business brokerage's lower market space is shockingly low quality. The brokers at the Sunbelts of the world, and on BizBuySell.com, mostly convince a business owner that they can take their business to market at a unrealistically high valuation. After that, the bids come in at much lower prices, and the business owner has simply already mentally retired, so they go with the lower bids even though they wouldn't have begun the process if they knew the final selling price was going to be so low. Ultimately, the SBA loans enable most of these transactions because their debt is available for a reasonably low yield and with a reasonably low downpayment. Bottom line - like everything else, if you find the right opportunity, it can be lucrative, but for every worthwhile opportunity, you have to sift through 1000 bad ones first...

Exactly. This is why WD-40 is an excellent example. Why would I ever bother doing any research or trying something new when it is in-expensive enough and it works? When my can goes empty I just buy another one the next time I'm at a home improvement store. I've had WDFC on my watch list for a while but haven't bought it. They also own 3-in-One Oil, which doesn't have the moat that WD-40 has, but is another well known brand and something cheap enough that you wouldn't bother buying the competitor. Is WD-40 a patented formula that can't be reproduced and sold under a generic store brand? If that's the case, long term, I would imagine that they'd have to lose out longer term to cheaper generic store versions. I've seen significant willingness within my network of people to switch the generic brands, whether its cereal or canned food at the grocery store, or the Walgreens-branded versions of common drugs like sudafed/zyrtec/advil. In all these cases, it's inexpensive items that are just being bought for slightly cheaper, but I have definitely noticed them taking up more shelf space at stores (as well as seen them more often at friends/family's homes).

I assumed that when they ended up hiring on Sham Gad as a full time Pres/CEO in December, it was because he was going to lead the "restructuring". I don't understand why they would need an additional Chief Restructuring Officer as well, with an additional significant fixed cost. I haven't tallied it, and I realized the laid off a significant amount of sales people, but I feel like with just the announcements of high-salaried new hires in the past 3 months, they have added fixed costs close to 20% of the company's market cap...I realize you have to spend money to make money, but seems like they are very surprised with everything that they are finding now that they are on the inside. Anyone have a position or view on this? Or possibly speaks with Sham Gad? I'd be curious what he's communicated with his investors about the situation so far...

I'd be interested in reading more about these TMST notes - any suggestions for a good starting point that summarizes the situation before I go to the filings?

As with everything else on Wall Street, secondary offerings were created for good reason but they also have the ability to be abused by management. If you have an investment in a small cap company A trading at P/E of 6, and 1x BV, and they have an opportunity to acquire a competitor B at a P/E of 4, and .7x BV, to the extent that A doesn't have other good financing sources, you should not be upset if A's management issues a secondary offering at a reasonable discount in order to raise cash in order to buy B. Bottom line - you just need to figure out what the reason for the dilution is, and decide if it is ultimately a good/bad decision on a case-by-case basis.

I guess my point is that after looking into it, I wasn't able to see enough underlying value to indicate the stock was "cheap". It would only appear to be cheap, in retrospect, if the company was able to survive and begin having a profitable distribution business. So I'm curious if I'm missing something in terms of it being a value opportunity, or if its simply a bet that Gad will be able to reconfigure this company so that they will begin having positive margins on their enormous sales, or both... Shalab - In terms of cheapness of the stock, unlike some other microcaps that sell for well under book value, it does not seem that if they wound down SED's operations that there would be anything left for equity holders. In terms of betting on Gad, Parsad explicitly stated on the board in the past that he's not a big fan, so I would assume that he seems some source of value that I am missing (or he believes there's a high likelihood of positive margins in the future)

I spent a few hours looking through the filings, but decided to pass. It seems like a bet on the potential of their operating leverage; their market cap is under 5 million, and their revenue is in the 100's of millions, so any small positive margins would have a massive positive impact, but any more losses and the whole company seems like it can get wiped out. I know that Parsad has the new policy to not disclose his fund's positions now, but since this one is already in the filings, I'd love to hear his take on it. Has anyone else spent any time on SED?

Side point - I'm relatively newer to the board, so wasn't aware that your fund was open to new investors. Is there a link, or file, you can post with your historical returns / positions? Might be interesting if others that actively manage funds that are open to outside investors also shared a bit about their funds/returns/AUMs/etc. I believe there are at least a handful of individuals on here who might be interested.

This debate is so ridiculous. Chanos is a good analyst and investor, and there's not really any data that can refute this. If you have a problem on whether or not short-selling funds have a place in a portfolio of fund investments, that's a different story. You may not need to shop at an oversized clothing store, but that doesn't mean that they don't serve a purpose to some part of the population, and that within that market, there are some better and worse retailers. To the extent that an investor (individual or institution) needs to smooth their returns, it is best to have something that has minimal burn in up markets, and maximum upwards convexity in down markets. There is no product of inexpensive hedge that exists that provides this. In order to have a minimal drag, and maximum convexity, you need to take a view on some metric (ie interest rates, index level) and also have a timeline by which it will happen. Off-the-shelf hedging products that perform well when the market is down and doesnt burn cash rapidly when the markets rip higher are a complete fiction. So to the extent that you need the closest thing for your portfolio, Chano's returns are close to as good as they get: up 4x the inverse of the S&P's down years, and down 1/10th of the inverse of the S&P's up years.

I believe he actually has a formula that pays on alpha. I don't know the exact specifics, but I imagine as a short-biased fund, alpha is considered something similar to performance that beats the inverse of the S&P 500's performance.

"A College Kid Made More Than $24,000 Just by Waving This Sign on ESPN" http://finance.yahoo.com/news/college-kid-made-over-24-153845085.html

The investor in me says there must be a value opportunity in acquiring attractive, but heavily indebted women..... Seriously though, this is a really unfortunate situation that exists for many right now in the US. For your friend, it's impacting her relationships. For others, it stunts different areas. For instance, if a young analyst had a new business idea he wanted to pursue, the decision to go after that dream will be greatly influenced by the fact that they will have to continue paying massively monthly payments on their student loans. Job quitting and business starting is not always the right decision for everyone, but I think the hurdle that student debt places on entrepreneurism is definitely an enormous cost that society takes on unknowingly. I know this is just one specific example, but I know several that have been affected by it, and I think there are a lot of negative repercussions student debt that most people do not consider.

Just saw this article of Yahoo's homepage about the most expensive Lego sets. Hope this doesn't kill the margins for the Lego investors on this board! http://games.yahoo.com/photos/the-10-most-expensive-lego-sets-slideshow/

Parsad - Is the reason you don't want to mention the name due to liquidity, or you simply don't like having your picks publicized?

Thanks for the postings so far. Looks like the main ideas so far have been: Traded Life Interests: I don't know too much about this area, but my understanding is that it actually is quite an institutionalized market, with several publicly-traded firms that participate. I've always thought about traded life interests as similar to reverse mortgages, as offered in so many daytime TV commercials--essentially the reverse mortgage provider gets the house's equity upon death of the senior citizens who reside there. No doubt that both businesses employ some shady characters, and there's probably some historical alpha associated with the non-desirability of owning (or being associated with) them such as with "sin" stocks but without knowing too much about it, I think the main concern is that its already simple for institutions to access the market. Helium: T-bone1, any specific reasons why helium might fit the profile they are looking for? Legos: To my knowledge, this would definitely put them on the frontier of a new asset class. But, unfortunately, assuming they were willing to become (or hire) experts in the Lego field, I imagine it is nearly impossible to put tens of millions to work in Lego boxes and not completely move the market. Any other interesting ideas? I know at one point they considered buying royalty streams from the estates of dead artists. Another interesting area my friend mentioned was that they looked into financing recovery expeditions of old ships that were believed to have sunk with significant valuables.

I had an interesting discussion with a friend today and want to see if any of the creative investors on this Board have thought about this or have any unique insights/ideas. My friend works at a large family office that is pretty forward thinking, and with the equity and bond markets both priced quite richly, they have had a few discussions about what types of non-stock/bond market investments they could be making that would offer strong risk-adjusted returns. They have done this successfully in the past, and are eager to find new opportunities where they can put capital to work. Importantly, their capital is long term, and they are not held back by fear of a bad reputation or making career-limiting moves--in fact they eagerly pursue ideas precisely because they might be considered less institutional. As an example, they were large scale investors in foreclosed homes very soon after local banks began to have a significant amount of their capital tied in owned real estate. Soon after that, though, they realized the real liquidity vacuum was in lending to real estate investors, and between 2009-2012 they had been able to source very well-collateralized loans to all sorts of real estate investors and developers at double digit interest rates. While the absolute return of mid-teens are not astounding to many investors on this board, in the context of their portfolio, it was a great source of return considering the extremely low risk--I think they never lent out money beyond 50-60% a loan-to-value. Further, they were able to put lots of capital to work in this theme. Anyways, as the returns in that area have now become significantly less attractive, they are looking for new areas of opportunity where they can again either fill a liquidity void or be an early institutional investor in industries or asset classes that are not yet institutionalized, or where temporary dislocation or structural issues have caused institutional capital to be scarce. Basically, if its obvious or clean enough for a typical institutional investment firm to be involved, they are not really interested....Anyone have any creative ideas?

I'd prefer that too, but if a company's story, business, and management are all perfect, it is far less likely to be bought at a bargain price.... Obviously I understand your point, and completely agree that its a huge red flag, but it is worth looking at the board that PGNT is proposing on their slate for SED: Jack H. Jacobs – Mr. Jacobs is an NBC military analyst and holds the McDermott Chair of Politics at West Point. He was among the most highly decorated soldiers in the Vietnam War, earning three Bronze Stars, two Silver Stars and the Medal of Honor. Mr. Jacobs serves on the Board of Directors of Paragon. If Paragon’s slate is elected at the annual meeting, Paragon currently anticipates that Mr. Jacobs will serve as the new Chairman of the Board of SED. Dennis L. Chandler – Mr. Chandler is currently an independent advisor to private equity firms for acquiring and turning-around underperforming businesses. Mr. Chandler serves as a director of FiberMark, a fully integrated manufacturer and global distributor of fiber-based covering solutions. Mr. Chandler was previously the Chief Operating Officer of ACCO Brands, a multi-billion dollar manufacturer and distributor of consumer and commercial office products. Hesham M. Gad – Mr. Gad is the Chairman of the Board of Directors of Paragon. He is also the Managing Partner of Gad Capital Management LLC, which is the General Partner of Gad Partners Fund LP. Gad Partners Fund LP is a value-focused investment partnership and the largest shareholder of Paragon. Samuel S. Weiser – Mr. Weiser is the Chief Executive Officer of Premier Exhibitions, Inc., an international provider of museum quality exhibitions. Mr. Weiser serves on the Board of Directors of Paragon and is the Chairman of its Audit Committee. He was a managing director for the Hedge Fund Consulting Group at Citigroup and is a former partner of Ernst and Young. Mr. Weiser is a licensed CPA. Klaus-Dieter Wurm – Mr. Wurm is an Executive Vice President of Schaefer Systems International, the largest provider of logistics systems and supply chain solutions in the world. Previously, Mr. Wurm was Vice President, Sales & Marketing for Krones, Inc., the world’s largest manufacturer of packing machinery and engineering services to the food and beverage, pharmaceutical, chemical and automotive industries.

Both of these stocks (SED and PGNT) have been tanking for the past 2 days. Has anyone done any work on either?

I imagine that when Ackman was buying these put options, his counterparties were hedging and probably buying either common stock or OTM call options. This might explain some of the upward move in HLF's stock price over the past weeks/months

I think most coffee drinkers and Starbucks customers will tell you that Starbucks is NOT their favorite brand of coffee. I think what brings people back is the consistency. Consistency of the quality, service, look and feel, etc. They have done a great job at maintaining their brand's quality and image while growing rapidly throughout the world. Often times, brands that expand that quickly falter in quality, but Starbucks has done a good job of maintaining consistency throughout their empire. In addition to that, their rewards programs and use of technology is one of the best I've seen in retail. They have a great, simple phone app and they figured out a good balance of rewarding their most valued customers while still doing a great job of servicing their less frequent customers.

Regardless of where you stand on the issues, don't forget Putin is not the saint he tries to make himself to be in the op-ed... http://news.yahoo.com/u-public-relations-firm-helps-putin-case-america-005946086--finance.html

Tax-exempt because many, if not most, of the largest hedge fund investors are large institutional clients such as pension funds (i.e Los Angeles Fire and Police Pensions, or CALPERS) . I am not too familiar with tax law, but I know that another large hedge fund investment component are foreign entities (sovereign wealth funds; foreign pension funds, banks, and insurance companies; etc) and I am not sure how those entities are taxed on US investments.